On April
22, the Supreme Court handed down its decision in
Dole Food Co. v. Patrickson, a case raising two
technical yet significant questions under the Foreign
Sovereign Immunities Act. [1] The first issue in the case was whether a
corporation owned by a subsidiary of a foreign state
qualifies as a foreign state instrumentality under
the FSIA. The second is whether a corporation that
was owned by a foreign state at the time of the
events giving rise to the suit, but not at the time
suit was brought, qualifies as a foreign state instrumentality.
The Court answered both questions in the negative.
On the
first question, the majority believed its conclusion
was supported by the plain text of the FSIA, which
defines a foreign state instrumentality as "any
entity . . . a majority of whose shares or other
ownership interest is owned by a foreign state or
political subdivision thereof." 28 U.S.C. §1603(b).
The Court held that petitioners the Dead Sea Companies
were not foreign state instrumentalities because
their shares were owned by a subsidiary of Israel
but not by Israel itself. It concluded that, under
section 1603(b), the companies would qualify as
foreign state instrumentalities only if Israel directly
owned a majority of their shares. Justices Breyer
and O'Connor dissented on this point. In their
view, if Israel indirectly owned a majority of their
shares, it held a majority of "other ownership interest"
in the companies. They noted that this construction
was supported by sound policy, as there was no conceivable
reason in their view why Congress would have wanted
to distinguish in the FSIA between first and second-tier
subsidiaries.
Neither
the majority nor the dissenting Justices discussed
the strongest textual argument supporting the conclusion
that the Dead Sea Companies were foreign state instrumentalities.
Section 1603(a) of the FSIA defines "foreign state"
as including a foreign state instrumentality. Thus,
if the company that directly owned the shares of
the Dead Sea Companies was itself directly owned
by Israel, then that company would qualify as a
"foreign state instrumentality" under section 1603(b)
and hence a "foreign state" under section 1603(a),
and the Dead Sea companies would qualify as a foreign
state instrumentality because its shares were directly
owned by a foreign state as defined in section 1603(a). [2] The petitioners did not make this argument.
During the oral argument, Justice Breyer stated,
in framing a question to the attorney for the Solicitor
General's Office, arguing for the United States
as amicus, that he was "sure this is not a tenable
argument, because no one has advanced it. [3] In response, the government's lawyer noted that the term "foreign
state" in section 1603(b) should be understood as
solely the foreign state proper because applying
the definition from section 1603(a) would render
the term "political subdivision" in section 1603(b)
redundant.
[4] This was a fair response, but hardly a
conclusive one. No one offered the textual rebuttal
that section 1603(a)'s definition of "foreign state"
purports by its terms to apply the whole of the
FSIA "except . . . section 1608 of this title,"
[5] an express exception that would seem to
preclude additional exceptions.
[6]
The Court's
holding significantly narrows the scope of the FSIA.
The issue the Court decided had been considered
in a number of reported decisions of the federal
Courts of Appeals, and, until the 1995 decision
by the Ninth Circuit in Gates v. Victor Fine
Foods, [7] all of them concluded that
second tier subsidiaries were foreign state instrumentalities.
[8] After Gates, the only federal appellate
courts to consider the issue, and most district
courts, rejected the Ninth Circuit's interpretation. [9] Before Gates, numerous suits were brought
against second or third tier subsidiaries and their
status as foreign state instrumentalities was generally
not questioned.
[10]
The plain
text of the FSIA was also the principal basis for
the Court's holding that federal jurisdiction is
lacking under the FSIA if the defendant was a foreign
state instrumentality at the time of the relevant
events but not at the time suit is brought. The
Court relied on the use of the present tense in
section 1603(b), which defines a foreign state instrumentality
as a corporation "a majority of whose shares is
owned by a foreign state."
[11] The Court also relied on the "longstanding
principle that 'the jurisdiction of the Court depends
upon the state of things at the time the action
is brought.'" [12]
Dole
apparently means that federal jurisdiction exists
under the FSIA if the corporation is privatized
after the suit is brought. An important question
that may remain open after Dole is whether
a privatized entity sued in state court may claim
immunity on the merits under sections 1604 and 1605
if it was a foreign state instrumentality at the
time of the events giving rise to the dispute.
Although those sections of the FSIA are written
in the present tense as well, they provide that
entitlement to immunity turns on the character of
the acts on which the suit is based, and the connection
of those acts to the United States.
[13] In the unlikely event that the plaintiff's
claim is based on the sovereign acts of a since-privatized
corporation, would the corporation be entitled to
sovereign immunity from liability? Support for
an affirmative answer may be found in Gould, Inc.
v. Pechiney Ugine Kuhlmann. [14]
About the
Author: Carlos Manuel Vázquez is a Professor of
Law at the Georgetown University Law Center and a
Member of the Inter-American Juridical Committee,
the legal advisory organ of the Organization of American
States.
[2] For more on this argument, see Vázquez, supra.
[3] Transcript of Oral Argument at 44, Dole Food Co.
v. Patrickson, --- U.S. ---, (2003) (Nos. 01-593,
01-594), available at 2003 WL 221855 at *43-46.
(His tone suggested that he was not at all sure
it was untenable.) Actually, the argument was
raised by amicus curiae The Republic of Ireland
and ICAROM PLC (Under Administration). Brief
of the Republic of Ireland and ICAROM PLC (Under
Administration) As Amicus Curiae In Support of
Petitioners, 2001 U.S. Briefs 593 at *11-*15.
[5] 28 U.S.C. § 1603(a). Section 1608 relates to
service of process, time to answer, and default.
[6] It is impossible to know whether the Court rejected
the textual argument described above on the merits
or instead declined to reach the argument because
no party advanced it. Compare Franchise
Tax Board v. Hyatt, 123 S.Ct. 1683 (2003) (declining
the invitation to overrule Nevada v. Hall because
no party had requested that the decision be overruled,
even though an amicus brief had made such a request
See Brief of the States of Oregon, et al.
as Amicus Curiae in Support of Petitioner, 2002
U.S. Briefs 42 at *5-*12 (urging overruling of
Nevada v. Hall); Brief of the States of Florida,
et al. as Amicus Curiae in Support of Petitioner,
2002 WL 31863327 at *1-*19 (same). In any event,
the argument would now appear to be unavailable.
[7] Gates v. Victor Fine Foods, 54 F.3d 1457, 1461-63
(9th Cir. 1995) (holding that a wholly owned pork-processing
subsidiary of Canadian-owned pork marketer was
not a foreign state).
[8] See See Joseph W. Dellapenna, Suing Foreign States
and their Corporations at 83 (2d ed. 2003).
[9] See Delgado v. Shell Oil Co., 231 F.3d
165, 176 (5th Cir. 2000; In re Aircrash Disaster
Near Roselawn Ind. on Oct. 31, 1994, 96 F.3d 932,
941 (7th Cir. 1996). ). See Dellapenna, supra
note 8, at 84 & n.198 ("Most courts to which
this argument has been made since Gates
was handed down have rejected the argument on
the strength of the many cases to the contrary.").
[10] The author represented one such subsidiary in
Gould, Inc. v. Pechiney Ugine Kuhlmann, 853 F.2d
445 (6th Cir. 1988). The straightforward textual
argument supporting the subsidiary's status as
a foreign state instrumentality (based on section
1603(a)) was not questioned by the plaintiff,
the district court, or the Court of Appeals.
For other reported cases in the courts of appeals,
see, e.g, Allendale Mut. Ins. Co. v. Bull Data
Sys., Inc., 10 F.3d 425, 426-27 (7th Cir. 1993)
(treating as a foreign state a subsidiary of parent
company majority owned by French government);
Am. W. Airlines v. GPA Group, Ltd., 877 F.2d 793,
796 (9th Cir. 1989) (treating as a foreign state
a subsidiary of Irish national airline wholly
owned by Irish government); Gilson v. Republic
of Ireland, 682 F.2d 1022, 1026 (D.C. Cir. 1982)
(for purposes of FSIA treating as a foreign state
a tiered subsidiary of the Irish government).
[11] Emphasis added. Section 1441(d) authorizes
removal by a "foreign state as defined by section
1603(a)," which in turn incorporates the definition
of a "foreign state instrumentality" found in
section 1603(b).
[12] Quoting Keene Corp. v. United States, 508 U.S.
200, 207 (1993).
[13] See especially the commercial activity exception,
28 U.S.C. §1605(a)(2).
[14] 853 F.2d 445, 450 (6th Cir. 1988)
(relying on The Western Maid, 257 U.S. 419 (1922)).
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